It’s tax time again, and as a student, many of your educational expenses may qualify you for tax credits. Of course, we’re not tax experts, but we do have some tax tips that may help you get a little bit more cash back this season. (Note: This blog was prepared for informational purposes only and is not meant to be tax or legal advice).
What are the education tax programs and how do I know which one is right for me?
There are two categories of education tax breaks, deductions and credits, and four programs: the Tuition and Fees Deduction, the Student Loan Interest Deduction, the American Opportunity Tax Credit and the Lifetime Learning Credit. With a tax credit, the credit amount is deducted from the amount of taxes you owe for that particular year. For example, if you owe $3,000 and have a tax credit for $2,500, your final tax bill be $500. A deduction, on the other hand, is taken from your taxable income, so your actual tax bill is less because you are being taxed on a smaller amount. The task, then, is to figure out which one is right for your specific situation. And while we can’t tell you which one that is, there are plenty of programs and professionals out there that will be able to steer you in the right direction.
Another factor used in determining which tax program is right for you is your student status. The American Opportunity Tax Credit (AOTC) is available only for undergraduate students, while anyone can file for the other options. You cannot, however, file for more than one, so make sure you choose the one that will be the most beneficial.
To see how each of the programs stack up to each other, visit “Financial Aid: How to Handle Your Tax Credits and Deductions”.
Things you should know:
What are the typical qualified expenses?
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Tuition
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Required fees for enrollment or attendance
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Other: books, supplies and equipment needed for a course of study
What expenses do not qualify?
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Room and board
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Transportation
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Insurance
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Medical expenses
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Sports
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Non-credit classes
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Student fees unless required as a condition of enrollment or attendance
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Same expenses paid with tax-free educational assistance
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Same expenses used for any other tax deduction, credit or educational benefit
How do I know how much money to claim?
Your school will send you a Form 1098-T, which will help you with tax preparation. You can also usually download one from your loan institution’s website.
How do I know if I’m even eligible?
The IRS provides a free online tool on their website. You can also ask a tax professional.
Stop by the Financial Aid Office if you have questions about education credits or your yearly expenses. Remember the deadline to file is April 15. Happy returns!